Lowe's Profit Drops, Hit by Weak Housing Market

Reuters

Monday, 25 Feb 2008 | 9:19 AM ETReuters

SHARES

Home improvement retailer Lowe'sreported better-than-expected fourth-quarter profit Monday and said it expects some headwinds facing its business to lessen as 2008 unfolds, and its shares rose nearly 5 percent.

The company also said sales had seen "improved performance" beginning in February compared with January.

Still, the second-largest home improvement retailer behind Home Depotforecast 2008 earnings below Wall Street estimates and scaled back its store openings for this year, citing "challenging" days to come as the slumping U.S. housing market hurts sales.

"People may be forward looking and starting to buy now in anticipation of these stocks doing well a few years out," said Zahid Siddique, an analyst with Gabelli & Co. He said investors already expect the coming quarters to look weak for Lowe's and Home Depot.

Earnings came to $408 million, or 28 cents a share, for the fourth quarter, ended Feb. 1, down 33 percent from $613 million, or 40 cents a share, a year earlier.

Profit was better than the 25 cents a share analysts expected, according to Reuters Estimates.

Sales edged down to $10.38 billion from $10.41 billion a year earlier. Analysts expected sales of $10.6 billion for the quarter, according to Reuters Estimates. Sales at stores open at least a year, or same-store sales, fell 7.6 percent.

The home improvement sector has suffered as consumers pulled back spending on home renovations in the face of declining home values, lower sales and tighter credit requirements.

"What's a little bit different is in this slowdown, you've seen a decrease in home prices," Lowe's Chairman and CEO Robert Niblock said in an interview. He added that many consumers who in the past had cashed out equity from their homes to finance improvements are no longer able to do that.

Still, Niblock said he expected effects of recent Federal Reserve rate cuts and the U.S. stimulus package to eventually promote business growth and improve housing affordability.

Lowe's, based in Mooresville, North Carolina, forecast profit of 38 cents to 42 cents a share for the current first quarter and $1.50 to $1.58 for the full year. Analysts expect 44 cents for the first quarter and $1.74 for the year, according to Reuters Estimates.

During a conference call, Lowe's finance chief Robert Hull said performance had improved in February after an 11 percent decline in January.

Lowe's said it will open 120 stores in 2008, scaling back planned stores in hard-hit markets such as California. In September, Lowe's had said it would open 135 to 145 stores in North America annually from 2008 through 2010. During its 2007 fiscal year, Lowe's opened 153 stores, including about four relocations.

The retailer said it would also hold costs down by staffing more conservatively in the spring than it has in the past and pulling back on major projects to remerchandise existing stores, although routine maintenance will continue.

The "outlook looks realistic-to-somewhat conservative, somewhat surprising given the company's persistent optimism through the housing/home improvement correction thus far," Sanford Bernstein analyst Colin McGranahan said in a research note.

Lowe's shares were up $1.13 cents, or 4.8 percent, to $24.72 in midday New York Stock Exchange trading, while Home Depot was up 55 cents at $28.32, or 2 percent. Lowe's stock has fallen about 30 percent in the past year, while Home Depot is down 31 percent.